Demand and Capacity Planning Pivotal for Profitable Growth

Opportunities to increase market share will increase when companies are pre-positioned for growth in a resilient and scalable way.

Demand and Capacity Planning Pivotal for Profitable Growth

By Lisa Anderson, Founder and President, LMA Consulting Group

Manufacturers are focused on successfully navigating continually changing conditions to serve customers while driving profitable growth. End-to-end supply chains are evolving, creating shifting demand patterns and customer order volatility. Manufacturers are jumping through hoops to satisfy customer needs and feel like they are on a teeter-totter of unpredictability, yet they must drive high levels of customer service and profitable growth. Thus, proactive manufacturers are leaning on predictive demand planning processes to estimate and get ahead of changing capacity and down-the-line supply chain needs to achieve the win-win-win of customer growth, cost containment/margin improvement, and cash flow.

Power Solutions Manufacturer: Customer Requirements and Predictive Capacity to Drive Growth

A power solutions manufacturer experienced a spike in demand as artificial intelligence and data center demand exploded. Although they had a high-level idea of forecasted demand, until quotes were turned into orders and the orders were engineered, the planners ran blind. In addition, because they had transitioned to a new ERP system and had not yet figured out how to utilize the advanced features, they were reliant on manual spreadsheets, historical expertise, and had a single point of failure in making sense of the information.

We partnered to create a reliable order backlog report. Without a clear picture of customer requirements, it didn’t matter how efficient Operations became. Several data issues had to be resolved, report settings adjusted, and order types excluded to get a reliable report of upcoming demand and one that would provide a predictable revenue forecast. Simultaneously, we started working on a predictive capacity model. This task was complex because we couldn’t afford to wait for Engineering to complete the design before knowing if we needed additional resources, cross-training, material contracts, and storage facilities.

Thus, we worked with internal experts to design the appropriate logic for certain product groupings, tied to the work centers, estimated labor resources, and developed a predictive capacity model that was directionally correct. With these basics, we could start working with the Sales teams to proactively address quotes, orders, and forecasts and the Operations team to proactively plan staffing, equipment needs, and storage requirements. It was rolled into a SIOP (Sales Inventory Operations Planning) process to align demand and supply, which drove customer service and operational efficiency improvements and resulted in a record-breaking revenue year.

Industrial Power System Manufacturer: Planning Capabilities Pivotal to Growth

An industrial power system manufacturer struggled to keep up with volume growth. Due to the engineered-to-order nature of several of their products, they were reliant on a multiple-step process that had to be tightly coordinated through the design, order, plan, build, assembly, and test processes. Although they utilized their ERP system to its fullest extent, they had outgrown the system and relied on manual processes to ensure success. Eventually, they had no choice but to take the leap and upgrade their ERP system to scale and support business growth.

Because they didn’t rely on planning functionality in their old system, they decided to postpone that upgrade until they got the basics up and running. Although it seemed like a smart decision to isolate risk, because Planning holds all the pieces together, not having that glue in place became the bottleneck. Executives jumped into the process to ensure orders were delivered, yet the process was missing its critical link. Thus, they rolled out the planning functionality and hired additional expertise to follow the order backlog, gain visibility to order status at each process step, and connect the engineering and configuration capabilities with Planning and Operations. With that, they gained visibility into demand forecasts and capacity requirements so that they could support their sales growth without an army of resources and instead rely on their ERP system and advanced planning system (APS) capabilities to support customer growth and drive business performance.

The Bottom Line

Although supply chain planning is often overlooked in its critical importance, it is core to predicting demand and ensure your end-to-end supply chain and manufacturing operations will deliver to customers on time and in full (OTIF). Starting with basic demand planning and order backlog management principles will assure demand predictability and power capacity needs. Translating demand into capacity projections and providing visibility for efficient execution will drive profitable growth. Planning can become the bottleneck or the driver for success.